How far can Yes Bank stock go from here?

Yes Bank is one of that wealth destroyers which lost over 90 percent share price in just 2 years. Decline in shares started when the RBI raised some issues over Rana Kapoor’s way of handling Non Performing assets and underreporting them. Thereafter, shares kept declining and only declining. Shares took a break from continuous sell off only when the PSU banks were called off to rescue Yes Bank. That time, nothing surplus was remained in the bank.

Now, when shares have stopped falling further, it seems like stock is making a good base at lower levels. From the worst in first half of 2020, some improvement can be seen in quarterly earnings. Bank has started reporting some profit. Considering all these things, many investors are thinking some extra ordinary situation regarding Yes Bank shares.

Recently, I observed several times on different online platforms that many stock market traders and investors are seeing Yes Bank as one of the best MULTIBAGGER opportunity!

They are with the view that when the share price of Bank can decline Rs 400 from higher levels during its worst time, why it can’t rise even 1/4 or atleast 1/8 of it i.e Rs 100 or Rs 50 respectively, from lower levels during its recovery time?

No doubt this thing is common in the stock market. When something has gone too much low, it bounce back towards higher range upto some level. But can Yes Bank also bounce back to Rs 50 per share or more when the stability returns in the Bank and the profitability turns consistent?

At first look, it could seem possible as the Bank has been able to stop losing its customers. They have already made provision of more than Rs 35,000 crore for bad debts. New Management’s full focus is on making advances of Bank more diversified and lowering the Risk level in business. But fundraising at lower levels again and again seems that part where many problems lies!

Rapid Dilution of Ownership of Existing Shareholders in Yes Bank

In 2020, Yes Bank executed two times fund raising activity. And the scale of fundraising activity was not small. In 2020, Bank issued more than 2,000 crore new shares to the investors between range of Rs 10-13.

After all this fundraising at lower levels, total Shares of the company now stood around 2500 crore in number. Due to this, Market Capital of the bank has reached Rs 40,000 crore mark when the share price is trading around just Rs 16! If it trades around Rs 100 per share, bank would have nearly Rs 2,50,000 crore (2,500 × 100) market capital!!!

Comparison of Yes Bank Stock with Other Banks

Even, much bigger banks like Axis Bank has only Rs 2,20,000 crore market capital! And their Income (Topline) is 3 times higher than Topline of Yes Bank. Total income of Axis Bank is around Rs 20,000 crore and of Yes Bank, it is around Rs 6,500 crore quarterly.

Banks like Federal Bank generates Quarterly Full Revenue of around Rs 4,000 crore and has a Market Capital of around Rs 16,000 crore. It means Price to Sales ratio (Market Capital/Total Revenue) of Federal Bank comes around 4. In case of Yes Bank, it comes around 6.1 (40,000/6,500) i.e higher than the Federal Bank. Higher the ratio, valuations would be more expensive.

In top banks like Kotak Mahindra Bank, Price to Sales ratio is around 26. Means, if Yes Bank reaches Kotak Mahindra Bank’s quality level, then it can rise upto Rs 60-65 with current financials. But the profitability and efficiency differences between Kotak Mahindra Bank and Yes Bank are much higher. Yes Bank is far behind of Kotak Bank’s Balance sheet strength.

A look at the Market Capital of Yes Bank is important as it gives a good picture of current valuations of a listed firm. As the profits of Bank are not stable right now, a look at profitability numbers may not be a good idea.

No Promoter holding in YES BANK Stock!

Having a high pile of equity shares doesn’t affect only Market Capital. It also affects Supply of shares in the market. In the absence of good growth, huge number of shares held by only Non-Promoter Shareholders generally makes it difficult for the stock to rise. In case of Yes Bank stock, now all the equity shares are owned by Non Promoter Investors!

Big Investors who were alloted new shares during the second round of fund raising in 2020 may largely seem inactive at current levels. But what if stock starts trading around Rs 25-30 range? In this price range, the investors who were alloted shares at lower levels will be earning more than 100 percent return on their investment.

Now, it is completely upon the strategy of investors. But basic rules says that when the share price would reach higher levels, more investors may want to take exit as they would be earning good amount of money. So, at higher levels, stock is expected to see a huge level of supply. In second round of fund raising, shares worth more than Rs 10,000 crore were issued.

As there is no promoter in the Bank and all of the shares are hold by Non Promoter category shareholders, more than 1200 crore shares are in the Free Float category. It means none of these shares are blocked and open to come up in marker for sale anytime.

In 2023, many more shares of the existing shareholders of Yes Bank are going to get unblocked which will bring more supply in the market.

Because there is no promoter left in the Bank who could care about its ownership in bank, continuous dilution of existing shareholders ownership in the Bank and steep rise in outstanding shares on Balance Sheet are not the concerns for the Bank in present time. Currently, main aim of the Yes Bank’s management is to stabilise the operations and lower the risks in business.

What does these things Means?

Depending upon the improvement in earnings and interest among investors, there is no doubt that stock has a potential to rise from here. But that potential is not high!

When we look at the charts and see where the Yes Bank stock has traded earlier in time (above 300 levels), stock may definitely seem a good option for turnaround bet in long term. But that is something need to be analysed along with other important facts.

Interestingly, when Yes Bank was trading around Rs 400 levels in 2018 and the business was going good, even at that time, Market Capital of the Bank was nearly Rs 80,000 crore. Now, if Yes Bank rises and reach Rs 32 levels, Market Capital would again become Rs 80,000 crore!!!

This interesting fact tells us about how much new shares have been issued rapidly after 2019 year to meet the necessary capital requirements and type of equity dilution has taken place in the Bank.

It was trading with Rs 80k Market Cap when there was no major issue in the bank and the NPA percentage was also not high. Today, Yes Bank is not in that condition! A lot of damage has caused in Advances of Bank. Many Big advances have turned NPA. In last several quarters, Bank has also witnessed a considerable decline in Income (Topline).

So, What is the Possible Yes Bank Share Price Target and how far it can reach?

Considering all above things, upside in Yes Bank seems quite limited. For the stock, reaching around Rs 50 or crossing this mark is very difficult now. With current financial position, if the Yes Bank is able to trade and sustain around Rs 20/25 range in the near future, then it will be a milestone for the stock.

However, if Bank can achieve some solid growth, then situation for the stock may little improve. Along with any improvement in Topline, it will be necessary for the Bank to bring the impact of that thing into Bottomline also (Profit numbers). Otherwise, investors who are holding Yes Bank’s shares of lower levels would make it difficult to let the share price rise BIG from here.